Technicals and Fundamentals Pointing Below 1.20 for GBP/USD

Early this month, GBP/USD fell to its lowest point since March as it tumbled to 1.2040, although it recovered for over a week, peaking at 1.2340 early last week. The release of the US consumer inflation report gave a boost to the USD and reversed this pair lower, sending it dipping just below 1.21 this week.

Moving averages, especially the 20 SMA (gray) have been acting as resistance throughout this week, capping the retraces higher, which shows that the selling pressure is strong. The surge in US treasury yields due to geopolitical tensions has been helping the USD and pushing this pair down as well.

The UK’s inflation report was revealed this week as well and it was also higher than expected too, but this had little effect on the GBP, which continued to decline. the other sectors of the UK economy have been showing weakness and the retail sales figures for August released on Friday were much worse than expectations, while the Bank of England governor Andrey Bailey said that he expects inflation to “fall out” next month. So, it seems like this pair will break below 1.20 soon.

Remarks by BOE Gov Andrew Bailey to the Belfast Telegraph

• September inflation figures not far off what we were expecting
• Core inflation fell slightly from what we expected, that is quite encouraging
• We will see more evidence of lower inflation by year-end
• Pay growth still well above anything consistent with inflation target

The primary focus of the headline is mostly on basic effects. As the ONS estimates, the rate of inflation in consumer prices in October 2022 was the greatest in more than 40 years, in my opinion. However, the trend in food price inflation is at least somewhat alleviating the persistently high level of service price inflation, which was 6.9% in September.

Latest Data Released by ONS – 20 October 2023

• September retail sales MoM -0.9% vs -0.2% expected
• October retail sales +0.4%
• Retail sales YoY -1.0% vs -0.1% expected
• Prior retail sales YoY -1.4%; revised to -1.3%
• Retail sales (ex-autos, fuel) MoM -1.0% vs -0.4% expected
• Prior sales (ex-autos, fuel) MoM +0.6%
• Retail sales (ex autos, fuel) YoY -1.2% vs -0.2% expected
• Prior retail sales (ex autos, fuel) YoY -1.4%; revised to -1.3%

GBP/USD Live Chart

GBP/USD